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Vishal \n Krishna <\/i><\/p>\n Vishal \n Krishna <\/i><\/p>\n
Businessworld, \n May 7, 2011
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Billionaire NRI Micky Jagtiani, chairman of the $3.8-billion \n Dubai-based Landmark Group, has not forgotten his roots. Whenever \n he visits his corporate office in Bangalore, he is generally driven \n around in a Hyundai Accent — a sedan meant more for the aspiring \n manager than the multi-millionaire. This low-key businessman is \n reported to have said that he wants to open a small retail shop \n in India and retire. Actually, he now has quite a few retail shops \n in India. From a single retail outlet in Bahrain in 1973, Jagtiani’s \n retail empire comprising a host of brands such as Home Centre, \n Lifestyle, Babyshop, Shoe Mart and Max, is today spread across \n 15 countries including Spain, the Gulf and China. But making it \n big in India is what Jagtiani has always dreamt of — and \n that dream is finally coming true. Having played it safe for over \n a decade (the first Lifestyle store opened in Chennai in 1999 \n and there are only 28 outlets), Lifestyle International is now \n ready with massive expansion plans. <\/p>\n
Lifestyle International, whose turnover is expected to grow to \n Rs 1,998 crore in 2011, up 55 per cent from Rs 1,286 crore in \n 2010, plans to spend Rs 725 crore — through a combination \n of debt and equity from the parent company — on store roll-outs \n over the next three years, and is set to take on big retailers \n such as Shoppers Stop (SSL) and Future Group’s Pantaloon \n head on. It hopes to have 58 Lifestyle stores by 2014 up from \n the 28 now. In comparison, Pantaloon has 50 stores now, while \n SSL has 38, and both plan to add about five stores every year.<\/p>\n
Expansion of its Home Centre brand — a home décor \n and furniture store, similar to SSL’s Home Stop and Pantaloon’s \n Home Town — is also on the cards. As is the plan to increase \n the number of Max stores — an apparel and footwear private \n label that has been hived off into a separate brand catering to \n the value segment where price points do not exceed Rs 1,000 — \n from 48 to 75 over the next two years.<\/p>\n
“We have differentiated from our competition and want to \n bridge the gap in every segment and price point,” says Kabir \n Lumba, managing director of Lifestyle International in Bangalore. \n While the competition focuses on the premium or the discount segments, \n Lifestyle aims at the middle-income executive. For Lifestyle, \n price points are a differentiator and this is why it has focused \n on expanding in Tier-II towns such as Coimbatore, Cochin and Durgapur. \n <\/p>\n
Spot The Difference<\/b>
\n Lifestyle aims to be different from competition in private labels, \n by turning them into stand-alone stores. While no other retailer \n has done this, Lifestyle has successfully created a chain of Max \n standalone stores. Kishore Biyani’s Future Group has the \n most private labels, but has no private label brand store yet. \n It converted some products into brands, though, such as its Lombard \n brand of menswear.<\/p>\n
“Converting private labels into brands is a great strategy. \n But opening them as individual stores is risky and needs time,” \n says Govind Shrikhande, SSL’s managing director. Globally, \n Max is a $750-million business for the Landmark Group and has \n 150 stores, 45 in India. <\/p>\n
Max sources its designs from West Asia and shares the vendors \n of the global team. It has 120 dedicated vendors in India. “The \n Max brand addresses the value segment. We launched four stores \n between 2006 and 2008. That time we did not know how successful \n it would be,” says Vasanth Kumar, executive director of Max \n Retail. Max is now a private-label cash cow with Rs 380 crore \n in sales in 2010-11. “The plan is to hit Rs 1,000 crore in \n three years,” he says. (Article continues below the graphic…)<\/i><\/p>\n
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Lifestyle International also hopes to build its Home Centre business. \n At present, Home Centre has 12 standalone stores and 13 within \n the Lifestyle stores. Although it generates a turnover of Rs 300 \n crore, the margins are low with only 3 per cent net profit. It \n involves maintaining a large warehouse of almost 100,000 sq. ft \n in Chennai, to maintain inventory. About 65 per cent of the stock \n is imported and to manage inventory better, the company is now \n planning to operate furniture in flat packs or knocked down units, \n which can be transported to the customer’s house. Other retailers \n such as SSL’s Home Stop (four stores) and Pantaloon’s \n Home Town (10 stores), too, follow this strategy. <\/p>\n
However, the furniture business takes about five years to break \n even and constantly struggles against competition from the unorganised \n sector. Globally, Home Centre generates a $1.5- billion business \n but the Indian operations broke even in 2011 because bulk buying \n happens from the Bahrain office. Lifestyle will spend Rs 100 crore \n to expand this business. <\/p>\n
“The margins come from stocking those items that customers \n come to replace, such as crockery or bed linen,” says P. \n Rajkumar, president of Home Centre and Baby Shop. “Managing \n the frequency of replenishment and opening stores in profitable \n regions is the key,” says Pinakiranjan Mishra, partner and \n national leader for consumer practice in Ernst & Young.
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\n Finding The Sweet Spot<\/b>
\n Lifestyle’s slow and steady pace has helped it maintain margins. \n In 2008, when recession hit, big retailers such as SSL and Pantaloon \n suffered huge losses. But Lifestyle continued to thrive as it \n had only 15 stores, while SSL and Pantaloon together had over \n 60 and had to stall their expansion plans. <\/p>\n
“Lifestyle has made profits from the beginning, though its \n allied retail businesses — Home Centre and Max — were \n yet to break even,” says N. Sundararaman, president of group \n finance and corporate affairs at Lifestyle International. Earlier, \n too, Lifestyle maintained a tight control over its inventory to \n ensure it was not stuck with unwanted stock. While SSL was following \n the buy-out model — stocks are bought in bulk, increasing \n inventory cost and leading to loss of cash — Lifestyle followed \n the part-consignment and part-buy-out model, with the latter amounting \n to 65 per cent. “We had control over what brands gave us. \n We chose what we thought would sell. This gave us growth when \n the market was down in 2008,” explains Lumba. <\/p>\n
Adds Abhishek Malhotra, a partner at Booz and Company: “There \n are various business models in retail, and apparel is the most \n organised of the lot. Still inventory management is the key to \n the success of the business.” <\/p>\n
Lifestyle’s debt-to-equity ratio, according to company sources, \n stands at 1.15, which is higher than peers such as Tata-owned \n Trent, Future Group’s Pantaloon and SSL, all of which have \n debt-equity ratios of under 1. <\/p>\n
Lifestyle has added 1.5 million sq. ft in three years taking \n the total to 2.6 million sq. ft. It will add another 2.5 million \n sq. ft in two years, with stores of 35,000-50,000 sq. ft size. \n But this is still smaller than 8 million sq. ft under Pantaloon’s \n apparel format, the largest in India. <\/p>\n
Organised apparel retailing is a Rs 60,000-crore business and \n is growing at 30 per cent year-on-year.<\/p>\n
“Last year, 25 international brands came to India,” \n says Devangshu Dutta, CEO of Third Eyesight, a Delhi-based retail \n consultancy, adding that franchises are opening around malls and \n in clusters where retail growth is high<\/b>. <\/p>\n
One of the tasks for retailers is to fill these gaps with private \n labels. <\/p>\n
“We have a large database of 2 million customers and we \n are using this data to plan better promotions,” says Lumba. \n Apparel retailing is so urban-centric that predictive analysis \n has become important. Analysts add that the next five years will \n see additional investment in apparel retailing and tie-ups with \n foreign brands. Lifestyle, for instance, exclusively sells Chanel. \n <\/p>\n
“In retail, it is all about control. By control I mean you \n need to be in grips with what stock a store needs and doesn’t \n need,” says Lumba. “People don’t know what designs \n they want. They perceive things at sight and we as retailers need \n to cater to that impulse purchase.” This is the reason for \n Lifestyle’s success, he says. <\/p>\n
But retailing is complex. Then again, the idea is to induce a \n buy. Lifestyle seems poised to create a multiplier effect of this \n concept. At least, it will bear testimony to Jagtiani’s belief \n that retailing is about giving value to the consumers.<\/p>\n